Better storage for crops on the cards

For a developing economy like Pakistan, its never too late to introduce reforms to improve infrastructure and market structure.
In this context, the joint proposal by the central bank, National Commodities Exchange Limited and Karachi Stock Exchange to facilitate the establishment of interlinked strategic units is a good notion.
Pundits in these financial market regulators will soon be pondering over how to set up National Collateral Management, Electronic Warehouse Receipt and Bulk Handling Company as a private sector initiative to provide a one-stop solution to those linked to the agriculture sector.
With the establishment of storage units and electronic warehouse receipt system, the overall economy will potentially be better off, given that a sizable portion of the farming economy currently lacks adequate storage facilities.
The farmers community, primarily small growers, can benefit the most from these interventions, as it will allow them to obtain low cost post-harvest financing by collateralizing the crops. This will also facilitate farmers to hold on to their stock until the price is right in the case of less perishable items.
Likewise, electronic warehouse receipt mechanism will add speed and efficiency to the overall system and will play a very important role in reducing the rate of forgeries.
Availability of secure warehouse receipts may also allow receipt holders to borrow funds from foreign markets, if and when the need arises. This practice is widely followed in many African countries.
Likewise, with proper storage facilities, it will be easier for market participants to earn profits by taking position in financial derivative markets.
Warehousing networks will also help government agencies in streamlining resource management practices, as proper documentation will help in reducing the gap between supply and demand. Moreover, it can also resolve food security issues, as secure warehouse receipts guarantee the existence of stocks.
The successful establishment of National Collateral Management is vital to address various risk management issues being faced by the farming society, since it is aimed to provide a wide range of services - from planning and budgeting to Testing, Certification to Trading and Delivery.
The proposed inter-linked system can also work as a service portfolio to importers, exporters, traders, processors and government institutions. In this regard, National Collateral Management Company operating in India can serve as a useful model to emulate in Pakistan.